Indonesia
Date: 5 May 2011
The event will be held in Jakarta, Indonesia, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Mr. Prabowo
Director of Programmes
PT Strategic Asia
Alberto Isgut
Economic Affairs Officer
Macroeconomic Policy and Development Division
United Nations Economic and Social Commission for Asia and the Pacific
Michele Zaccheo
Director
United Nations Information Centre
Indonesia
Country briefing note <download pdf file>
Economic growth is led by a large and buoyant domestic market
• Indonesia , with its large domestic market, was among the fastest growing major economies in 2009 at 4.5% and grew even faster, by 6.1%, in 2010.
• The economy benefited from continued strength in household consumption, robust exports and improving investment.
• Private consumption was supported by the availability of consumer financing and low household debt and mounting consumer optimism. Meanwhile, investment benefited from a recovery in lending to the private sector as well as increased inflows of foreign direct investment.
• On the production side, the services sector, including retail and telecommunications, saw a sharp rebound compared to the more modest and steady recovery in industry.
• In 2011, Indonesia is expected to see growth accelerate to 6.5%.
• Strong capital inflows and rising commodity prices, if well managed, should provide additional resources to narrow the social and infrastructure gaps.
Inflation is on the rise, however, driven by higher food prices
• Inflation in December 2010 reached nearly 7%, although the year-average was 5.1%.
• Food commodities, particularly rice, dominated the list of commodities contributing most to inflation. Higher electricity tariffs also led to some upward pressure.
• In response, the Government suspended rice import duties in January 2011 in a bid to boost rice stockpiles and extended the rice for the poor programme through 2011.
Fiscal improvements are being followed by subsidy reforms
• Indonesia has successfully reduced its public external debt to below 30% of GDP from almost 90% in the past decade. Fiscal deficit is also gradually narrowing to near balance, making it cheaper for the Government to raise funds.
• However, the lower-than-expected fiscal deficit in 2010 (0.6% of GDP) was primarily due to missing the implementation targets on planned public expenditures.
• The Government stepped up efforts to reduce the subsidy bill, which took up 4% of GDP on average in 2007-2009.
• At the same time, the Government has proposed boosting capital expenditure to finance infrastructure development and continue pro-poor social programmes.
Monetary stance becomes less accommodative
• Bank reserve requirements were raised from 5% to 8% in November 2010, but the policy interest rate remained at 6.5% through 2010. As inflationary pressure mounted, however, policy rate was raised by 25 basis points in February 2011, the first hike since August 2009.
• At the same time, measures were put in place to encourage banks with sufficient reserves to continue lending, including to micro-, small and medium-sized enterprises.
• Boosted by strong foreign capital inflows, Indonesia 's stock market surged by 46% in 2010, making it one of the best performers.
As current account surplus narrows, capital account is marked by strong inflows
• Indonesia saw its trade surplus rise in 2010, but with rapidly growing imports driven by a large and buoyant domestic market, the current account surplus is narrowing down. It fell to $6.3 billion in 2010, from $10.7 billion previous year.
• In response to large capital inflows, Indonesia introduced restrictions on foreign purchases of short-term bonds issued by the central bank in June 2010, followed by additional measures to slow the currency appreciation introduced in December, including higher foreign currency reserve requirements. (As 2011 began, capital inflows somewhat moderated, leading to a downward correction in asset prices).
• The Indonesian rupiah gained 4.6% against the dollar in 2010.
• After declining in 2009, FDI inflows more than doubled to $12.8 billion in 2010.
• Reserves reached $96 billion by end 2010, $36 billion above from the pre-crisis peak.
Continued effort is needed to address vulnerable employment and poverty
• While unemployment has fallen to pre-crisis levels in many countries in South-East Asia , the formal sector has seen less improvement, as many of the workers who had been laid off were absorbed by the informal sector during the crisis.
• In a number of countries including Indonesia , this change was often reflected in a decline in employment in the high value added manufacturing jobs and a rise in low value added activities in services and agriculture.
• The informal sector, however, suffers from lower productivity, lower wages, poorer working conditions, and minimum levels of social protection.
• This has serious implications not only for poverty but also for future growth.
• Human resources and skills development—including strengthened education, technical and vocational training—are vital for sustained dynamism.
• Such efforts will also help to tackle high youth unemployment. Moreover, considering that labour is one of the few assets of the poor, creating more and better jobs will help the poor to earn their way out of poverty.